Dr Emmanuel Igwe is lead economist at the Prosperity Institute.
When John Healey delivered his on the 28tn October, he did not touch the welfare bill. In his speech, he stated that nothing would be said of welfare reform until the Timms Review is released this autumn. After that, the Government will before the end of the year with a white paper with legislation to follow in 2027.
On the Today programme the next day, Healey said that reductions in the welfare bill would come down “the Labour way”. By that evening, Treasury officials were quick to clarify that no schedule has been set for such a reduction. In one day, the official Government narrative shifted from a promise of cuts to a promise to do nothing at all.
If it feels like déjà vu, you’re not wrong. The Timms Review is not to find savings from its reform proposals. Last year, the attempt to trim Personal Independence Payment (PIP, meant to cover additional costs associated with disability) caused a rebellion on Labour’s back benches, permanently hampering Keir Starmer’s premiership and ultimately leading to a Bill that increased costs.
6.7 million working-age adults a year. Spending on PIP has increased from close to £13 billion in 2019/20 to £22 billion last year and is £34 billion by FYE 2031. By 2030, the OBR projects that more than 3 million people would be signed off work with incapacity. Officials initially anticipated that one-in-ten Universal Credit claimants would be deemed unfit for work. Today, it is 81 per cent.
This is not new. Back in the 80s and 90s, the solution to crippling unemployment was to let it drift to Invalidity Benefit, at which point claimants were not counted in official unemployment figures. Between 1979 and 1994, the IB caseload almost from 600,000 to 1.5 million, with a significant number of recipients never working again. When the government says someone is unfit to work, it rarely changes its mind. By 1997, Tony Blair had challenged Frank Field to “” concerning welfare reform. Within a year, he was out of government and the thinking had stopped. The Labour party has proven time and time again that it is allergic to genuine welfare reform.
The welfare bill is currently treated like the weather: not something to be controlled, merely forecast and accommodated. But the welfare bill is not a force of nature. It is the cumulative sum of millions of decisions made within an incentive structure built by elected politicians.
The ability or failure to understand incentives has become one of the great dividing lines in British politics. When people know that a Universal Credit claimant with three children is given £10,000 more per year than a full-time worker on minimum wage, people react. When assessment for benefit claims do not require any medical evidence or professional diagnosis, conditions that are hard to evidence to the DWP but easy to get diagnosed will spike. When the Treasury pays whatever the caseload demands, no one in Whitehall owns the number.
It is within this context that the Conservatives’ new welfare proposal – projected to save £36.1 billion – should be understood.
These reforms are grounded in the principle of actual fairness, to both those who put into the welfare bucket and those who draw from it. Universal credit would be available to everyone for six months, then a further year for every two years of full National Insurance contributions This means the person who has worked for 20 years will be treated differently from the person who has never worked.
Elsewhere, the household benefit cap is being reformed. Currently, a single person in a household receiving PIP or another qualifying benefit exempts the entire household from benefit caps. At present, only 0.2 per cent of benefits are ever subject to a cap. The Conservatives propose limiting the exemption only to the person that qualifies for the benefit.
On National Insurance, meanwhile, employers would have their contributions halved for employees aged 21-24, which would make hiring young people more affordable, preventing them from being frozen out of work by the need for their employers to pay for today’s pensioners.
While these recommendations are commendable, there are still some shortcomings. The most glaring is the basis for the £13.7 billion savings from sickness and disability benefits. It largely rests on holding mental health claims at 2026 levels and returning back and joint injury claims to 2021 levels. But an assessment which can distinguish between mild and severe conditions is needed, yet the report does not offer one.
The report also notes that 1 in 6 PIP claimants say their disability brings them no extra costs – ironic, given that PIP is an ‘extra cost’ benefit by definition. This raises the question of whether a cash payment that is unrelated to one’s income is a proper welfare instrument. The report admits that it wants to move away from cash, but the savings identified in this policy package comes from narrowing the eligibility criteria to access cash benefits, with only £1 billion invested in treatment initiatives. If cash is the wrong tool, then the solution should be eliminating cash as an incentive and designing an alternative rather than merely trimming access to the cash.
Finally, although the report starts by expressing its intent for candour, it blames the courts, the pandemic and social media for the rise in caseload but fails to admit the most important fact: that our obscene welfare increase began under a Conservative Government.
The current Labour Government is doing a good job of losing any credibility it may have had after the last general election when it comes to welfare control, but the Tories can’t yet assume that this latest announcement means the public trust them much more.